EMC faces DoJ probe

Someone blew a whistle

The disk storage and software maker recently filed its 10-K annual report with the Securities and Exchange Commission, and in that report, it said that the Civil Division of the US Department of Justice has launched an investigation into two different sets of allegations that some unknown person or organization has made concerning the company.

The first set of allegations that the DoJ is investigating is related to EMC's fee arrangements with systems integrators and other partners with respect to Federal government contracts. The second set have to do with the terms and conditions of deals through which it sold products and services to the Federal government, which EMC said in the report could involve potential violations of the False Claims Act.

The False Claims Act - sometimes called the Lincoln Law - is a US federal law that allows whistleblowing, in this case by people who don't work for the government against those that are contractors of the government. The False Claims Act is celebrating its 146th birthday today. It was enacted during the American Civil War because the Justice Department of the time didn't have the spine to chase down corruption amongst defense contractors. The law gives whistleblowers a cut of the action if an alleged fraud is proven to be true and damages are recovered as a motivation to do take on the powers that be.

For EMC's part, it considers the litigation "routine and incidental to our business" and that the company's management "does not expect the results of any of these actions to have a material adverse effect on our business, results of operations or financial condition."

"The subject matter of this investigation also overlaps with that of a previous audit by the U.S. General Services Administration ('GSA') concerning our recordkeeping and pricing practices under a schedule agreement we entered into with GSA in November 1999 which, following several extensions, expired in June 2007," EMC explained in a statement.

"We have cooperated with both the audit and the DoJ investigation, voluntarily providing documents and information, and have engaged in discussions aimed at resolving this matter without any admission or finding of liability on the part of EMC. We believe that we have meritorious factual and legal defenses to the allegations raised and, if the matter is not resolved and proceeds to litigation, we intend to defend vigorously. If the matter proceeds to litigation, possible sanctions include an award of damages, including treble damages, fines, penalties and other sanctions, including suspension or debarment from sales to the federal government." ®